Welfare economics and policy analysis of US biofuels policy: Discussion

Abstract

The just-enacted energy legislation provides a useful platform to discuss the economic and social impact of U.S. biofuels policy, and the three papers submitted to the "Welfare Economics and Policy Analysis of U.S. Biofuels Policy" session provide an excellent framework for such an analysis. On 19 December President Bush signed into law "The Energy Independence and Security Act of 2007," which established the largest increase in a biofuels mandate (known as the Renewable Fuels Standard, RFS) in history. The new RFS requires the use of at least 36 billion gallons of biofuels in 2022, a five-fold increase over current RFS levels (as defined in Public Law 109-58). By 2022, biofuels would represent slightly over 20% of U.S. automobile fuel consumption. Congress and the President argue that the RFS will diversify U.S. energy supplies and reduce dependence on foreign oil while limiting the impact on food and agricultural prices. As the chart shows, the new law seeks to limit the impact of corn-based ethanol (defined as "conventional biofuels") in the RFS by limiting it to 15 billion gallons a year after 2015 and encouraging the use and development of improved biofuels (defined as "advanced" in the law). The legislation, as well as the 2008 Farm Bill approved by Congress over the President's veto, provides also incentives (tax credits and other benefits) to the production and use of advanced biofuels (figure 1). The framework and analysis by Tyner and Taheripour, de Gorter and Just, and Khanna et al. helps us to evaluate the impact of the new energy legislation. What follows are some initial questions for discussion and possible areas for further analysis.

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